House Judiciary Committee Chairman Bob Goodlatte of Virginia has released a second discussion draft of legislation intended to restrict litigation brought by non-practicing entities (NPEs). A copy of the draft is available here.
In June 2013, the White House released a report critical of NPEs and their role in patent infringement litigation, available here. Chairman Goodlatte’s draft would affect patent infringement litigation in a variety of ways, including the following.
Specific Pleading Requirements
The draft legislation would require a party alleging a patent infringement claim to provide details, including identifying each patent and specific claims infringed, the accused product and its name and model number (such as which patents and claims are at issue, as well as exactly what products allegedly infringe and how).
The draft would also require information about the party, including a description of its principal business, a list on each infringement complaint filed on the patent-in-suit, and whether the patent is licensed or a price is set through any agency or standard-setting body. Form 18 of the Federal Rules of Civil Procedure, which allows a brief notice form of pleading in patent cases would be eliminated.
The Supreme Court may adopt a new form showing model allegations of patent infringement that, at a minimum, “notify accused infringers of the asserted claim or claims, the products or services accused of infringement, and the plaintiff’s theory for how each accused product or service meets each limitation of each asserted claim.”
Joinder of “Interested Parties”
If the plaintiff NPE is a shell-company, the Court shall grant a motion made by the party defending against an infringement allegation to add any “interested party” to the case, with certain exceptions. An “interested party” is defined to mean a party or parties that are patent assignees, has a right to enforce or sublicense the patent, or has a direct financial interest in the patent, including the right to any part of a damages award or licensing revenue.
Fees and Expenses
The draft bill would generally require a losing party that asserted a patent claim to pay the winner’s reasonable attorneys’ fees and expenses. However, if the losing party is unable to pay the award, the court may force any “interested party” joined in the litigation to pay.
Along with the complaint for patent infringement, the draft would generally require the plaintiff to disclose to the U.S. Patent and Trademark Office, the Court and the adverse party the identity of any patent assignee (and its ultimate parent), entity with a right to sublicense or enforce the patent-in-suit, any other entity that has a financial interest in either the patent or the plaintiff. A plaintiff that does not comply would be subject to certain sanctions.
The District Court may limit discovery until after it has construed the meaning of disputed claim terms in the patent. The draft bill also requires the Judicial Conference to promulgate regulations to limit the scope of discovery. Parties will be entitled to “core documentary evidence”, defined to include documents relating such things as conception and reduction to practice of the patents, technical operation of the accused product, invalidating prior art, past licensing, profits attributable to the claimed invention, the alleged infringer’s knowledge of the patent and marking.
Computer code is only discoverable upon a motion for good cause. The draft limits the discovery of electronic communications. Any additional discovery would require the party seeking it to bear the costs, including fees, of the extra discovery and to post a bond to cover expected costs. A court may limit the additional discovery.
Staying customer suits
The draft legislation requires Courts to stay patent litigation against customers when there is parallel litigation against the manufacturer involving the same patents and products.
Other provisions in the draft relate to protection of IP licenses in bankruptcy, small business education and outreach, studies on patent transactions, quality, and examination, and other changes to the America Invents Act. Chairman Goodlatte’s draft bill, if adopted, would have a significant impact on patent litigation in the United States. Hearings on the proposed draft are expected but have not yet been scheduled.